Gold is NOT a safe investment

This will surely create some controversy…. Add to that the conspiracy theories and certain stock market reports that use gold as the ultimate fear-axis to get attention, what you end up with is a lot of disillusioned and misled investors.

The only truth is the result.

If you only had one chart to wrap up what’s happening in global markets right now, it would be this one – The price of Gold.

Since a 2011 peak at around $1900 an ounce, the price of gold dipped… and then sank… and is now trading around $1300 an ounce, with every threat that it could be falling further.

That’s a 30% fall in less than two years.

The golden days of gold seem to have run their course. For a long while it could do no wrong, from a launching pad of around $250 an ounce before the turn of the millennium, it posted gains from pad to peak of over 600%.

And all this through the most ‘challenging’ of economic times – through the popping of the dot.com bubble, the Enron scandals, The Iraq wars, and even the GFC.

Gold was the thinking man’s safe haven of choice.

But not this year. Gold’s been on the skids since George Soros indicated in April that he thought that gold was no longer the safe haven it used to be, and the smart money was getting out. Then in October, Goldman Sachs’ head of commodities research said gold was a “slam dunk” sell and that it was headed for $1,050 an ounce.

(No, I don’t know what a ‘slam dunk’ sell is, but it sounds serious.)

But you still hear people saying that gold is a ‘safe investment’.

So let me spell it out loud and clear, in flashing neon lights…

GOLD IS NOT A SAFE INVESTMENT

First of all the idea that gold is ‘safe’ is ludicrous now. “Safe” investments are things like term deposits, that pay you a predictable amount of sod-all a year, with zero volatility.

“Safe” investments DO NOT fall by 30% in 18 months, or have volatile lurches in price every time Bernanke farts.

Secondly, as I’ve argued, gold is not really an ‘investment’. Not as I see it. Gold doesn’t pay you a return. There’s no rent or dividends.

If you’re buying gold, then you’re probably doing it for one of two reasons. The first is that you expect that the price will keep going up, and you’ll be able to sell it for more than you bought it. This isn’t gold investing, this is gold speculating.

But if you’re speculating then you’re completely at the mercy of the market. You’re “investment” is only worth as much as everyone thinks it’s worth, and if George Soros tells everyone that it’s not worth as much as they thought it was worth, then you take a hit.

The second reason people have bought gold, especially since the GFC and the launch of the Quantitative Easing era, is as a way to preserve wealth in the face of global economic calamity. If the economic system completely melts down, or even if we only have run away inflation, then gold offers you a way to preserve your wealth.

In this sense, it’s really just a shiny insurance policy.

But you know, I’ve never really understood this.

Let’s say a door-to-door sales comes to your house and offers to sell you zombie apocalypse insurance.

“If you pay us a certain fee, we promise to return your wealth to current levels, should there be a zombie apocalypse.”

There’s a few things you’ve got to ask yourself.

How did this guy get past the security gate?

How likely do I think a zombie apocalypse actually is?

If there is a zombie apocalypse, is this guy actually going to be able do what he’s promising? If the world is actually taken over by brain-eating zombies, who’s going to give me my pay-out? What will a pay-out even be worth if I don’t own a shot gun?

Now, when it comes to gold, I think most people get to 2., but never make it to 3.

What’s the risk of total economic melt down? I’d actually have to say to me, it looks like an incredibly small risk. Our standards of living are built on the foundations that the current economic system survives and prospers. Everyone wants to see the game continue – from the vested interests of Wall Street, to the mums and dads of back street Australia.

So a bet that the economic system will fail is to bet against the ingenuity and endeavour of the entire human population. I’ve seen humans do some pretty crazy and amazing stuff. For my money, if we had to find a way to avoid economic ruin, I reckon we could. We have the social, political and technological will.

But more to the point, if the economic system did collapse, what would a piece of paper that said you owned a chunk of gold in a basement in London actually be worth? Who’s going to honour it?
If there’s total economic collapse then no one’s paying the police. There’s a break down in the rule of law. Even if you had it in your hands, would some one give you their last can of beans for it, if there was no food to be found?

My point is, when people buy gold to insure themselves against economic collapse, they forget that a post-collapse world would be fundamentally and radically different, and if that is what they’re worried about, a piece of paper that says they own some fairly useless metal isn’t going to save them.

And before you say I’m missing the point that QE is debasing the USD, and inflation is inevitable… if that’s your argument, look at the inflation data. 5 years into QE inflation is falling not rising.

Who knows how it’s going to end? It’s radical stuff. But there is nothing to say that it has to end in hyper-inflation. If there was such a certainty, then it would have been priced into the market already.

Nope, the gold boom was a gold bubble. The further we get from economic calamity, the more it will unwind.

So if you want to speculate, buy something else. If you want insurance, buy a shot-gun and a bunker of canned food.

Comments

Thankyou. #3 and this statement has always made my spidey-sense tingle when it comes to gold and silver insurance;
“My point is, when people buy gold to insure themselves against economic collapse, they forget that a post-collapse world would be fundamentally and radically different, and if that is what they’re worried about, a piece of paper that says they own some fairly useless metal isn’t going to save them”

Yes Bernanke and the incoming Yellen will fix everything by printing even more money and flooding the globe with hot cash… Move on, nothing to see here. The Dow will continue rising into infinity along with all other global markets…. Please! Keep up the doom and gloom for PM’s JG I need some more time to pick up some good quality gold miners at ridiculous discounts.

When you’ve finished with gold, move onto coal and then uranium so I can do the same!

Yes Robert buys property, stocks, businesses…. and gold and silver. He owns piles of the stuff. His behaviour is not at a disconnect from Mike, in fact he partnered with Mike because he believes in and has been buying gold and silver since the early 1970s.

Robert also says that if the price of silver goes low enough, he will sell his Ferraris to buy more of it.

I agree that it is not a productive investment and that people should be in income-producing assets and diversify their wealth across multiple asset classes, because things might turn out ok. But with metals, especially silver at more than 50% below it’s *1980* high, and the interests of the world’s leaders to fight deflation until there is inflation, it would be foolish to ignore the opportunity that still exists in precious metals.

Gold will always have value, if you pay cash for it. When stocks and share go out the door, gold will be one of the things of value. China is a huge player in buying gold, (not paper). Anything in paper will crash.Property maybe good for some if you paid cash for it, but this will be hit hard as everything comes down and it will happen very shortly. All of us have to open our eyes and look what;s happening around the world, and it;s slowly coming here.

Gus, I dont think our property values will ever crash as they have in the states, we just dont have the population they do in the States and secondly, our housing is in great demand as we are in short supply, with all the refugees arriving here they need houses to live in, people are on government housing waiting lists for many years and not enough rental properties are available. So look at the facts, plus China cant get enough of our properties for their investors, so tell me how is the market going to crash?

Job lay offs, Companies closing down, Government cut backs, Tax hikes, power,food,fuel,and just about anything you could name, has a huge impact on the housing market. This will cause the market to slide. Not enough housing, ask the ?? why. Is it Government or private investment that is the problem.All these so called refugees coming to this country are causing a major headache to the Government,having to house these people,feed and give money to them, which we as tax payers have to fund. The housing construction industry is down in the dumps, and we have a housing shortage. The affordabitity of housing throughout Australia has become so far out of reach for the average worker, even with Government hand outs. If there is not a correction there is going to be a huge number of properties on the market and there is now in any areas around this country, all at lower prices. People are walking away because they can’t afford to pay for them, and if they can’t afford a mortgage how will they pay their rent.

The problem is that we have been sucked into all this s##t that is going on all over the world. At the end of the day it comes down to (ONE WORLD POWER, ONE WORLD GOVERNMENT, ONE WORLD RULE) bring every Country and their people down, so we all become their slaves, as most of us are now.People that become totally reliant on Governments for their every day needs are most at risk because when Governments have not got enough income to pay all these people we get major problems. Just look at our Government and the cut backs they want to bring in, that tells a huge story.

Good, except I don’t understand your statement “If you only had one chart to wrap up what’s happening in global markets right now, it would be..the price of gold”. Are you suggesting that the current low price of gold is some sort of indicator that reflects the stock market has also dropped by 30%? Because if you are I disagree with you, gold tends to reflect the inverse of what the stock market is doing, and only got to those record highs because of the record lows of the GFC. The fact that Gold has steadily been dropping indicates an increasing confidence in the stock market which tells me it is recovering. So when times are looking tough on the stock market people do invest in gold, and if gold drops it means they have moved their money back elsewhere, most likely the stock market and yes, real estate.

Andrew…. Do you really believe the stock markets are rocketing to new highs on fundamentals and intrinsic value…..?

The markets are here because they are pumping $85 billion into the system every month and the markets are running on unadulterated greed and expectation QE will continue.

The economic data coming out of the US is woeful. Unemployment is at 7.3% however, that figure doesn’t take into account the huge number of people who are no longer looking for work and as a result don’t show up in the figures. The real figure is greater than 7.3%. GDP is anaemic at best. Nonfarm payroll figures are woeful. Not to mention the terrible figures that are just about to be released that depict the effects of the government shutdown.

The only reason people are investing in the stock market at the moment is because the market believes the fed will continue to add $85 billion to the punch bowl every month and the party will continue.

When the fed mentions tapering the markets shudder!

When Bernanke first signaled that tapering could begin later this year, mortgage rates rose dramatically and the housing recovery lost some steam. The rate on a fixed 30-year mortgage rose from 3.4% in early May, to 4.6% in September 2013.

Gday Jon, i get your stuff in the mail, i think my brother put you on my email, and i occasionally have a read. What i think you need to understand and most people out there is that they, the powers that be want the system to CRASH, they don’t want to avoid it, they don’t want to use technology etc to fix things, they want it to crash. We are haeding to another great depression and this is what they want.
I’m not talking about government here, i’m talking about the people that REALLY CONTROL the ecconomic system. Do you understand that the US federal reserve is a PRIVATELY OWNED bank? I could go on. crashing the ecconomy IS part of there agenda. Probably because part of there plan is to cancel cash and microchip evryone. Do some (or a lot) research into ONE WOLRD GOVERNMENT and NEW WORLD ORDER and you begin to see. Don’t just say it’s conspiracy theory, it’s happening.

This story strongly indicates the owners of this web site are incompetent and unreliable.
Lets go through the stupid claims made on this page:

1) Gold has no income
How many shares on the ASX have ZERO dividend?
How many people buy vacant land and “land bank” …. with ZERO rent?
How many people buy a precious art work / precious jewelry ….. and get ZERO income?
The claim that “Gold is bad because there’s no income” is a stupid stupid statement.
2) Gold is bought to speculate the price will go up
WTF is negative geared real estate? Everyone buys real estate because they expect the price to go up.
The real reason you are buying is because the AUD (and all others) are fiat currency. It is paper that is guaranteed to lose value over time. Consequently, you are forced to buy a REAL asset such as gold or real estate. You are forced to try and choose the best REAL asset to protect yourself from inevitable inflation of worthless fiat currency. Some may say gold is the best REAL asset. Maybe Picasso paintings are a better choice. Maybe real estate. At the end of the day, you are forced to offload your depreciating currency.
3) Gold has dropped 30% so it is volatile
In 1976 gold dropped from $200 to $100, and 4 years later it was $500 – $850.
In 2008 gold dropped from $950 to $700, and 3 years later it was $1900.
You need to hold precious metals 5 years or longer to make a good profit (same as real estate).
Trying to do short term trading is crazy and a good way to lose money.
Also, my theory is the stock market was a bull from 1980 to 2007, 27 years. I think precious metals will be bull market from 2000 to around 2027.
4) Gold is an insurance policy, but you won’t be able to use it if disaster strikes
I disagree – the fact is there will always be at least one country in the world that is strong and a safe place to live. And you can always use gold to buy yourself a ticket to that country. When the USA collapses, Americans with gold / silver will be able to buy a ticket to Europe or Asia and escape the madness. They can use precious metals to start a new life.

It is obvious that China is up to something hoarding gold like a dragon. In fact, it is taking a leap forward to control the world currency and to replace it with the yuan, Dr. Thorsten Pattberg, China expert at the Peking University, told RT.

China is vowing to make more reforms, among them cutting red tape and establishing the yuan as a world currency. The 7th Annual Meeting of the New Champions is opening in the Chinese city of Dalian, the gathering has become known as a ‘summer Davos’. RT has talked to Dr. Pattberg about China’s prospects for introducing a new world currency.

RT: Do you think when China says it wants to make the yuan a global alternative to the dollar, is there any possibility of that happening at some point?

Thorsten Pattberg: Yes, it’s perfectly reasonable to think that the Chinese want to see their currency become the next world currency, there’s a plan. And of course China at the moment is purchasing more and more gold, this also plays into this. We heard they recently purchased several hundred tons of gold through Hong Kong, the trading hub. And of course if you hoard gold like a dragon, this is a lot about prestige. The mere presence of gold in your country gives rise to even more self-confidence and to this bling-bling sensation that China is really up to something. The mere intention to buy more gold in the future will certainly have an impact on the rise of gold prices in the world. So China is taking a leap forward to control the world currency and to replace it with yuan.

RT: The current Chinese leadership seems almost obsessed with reforms. Why? Isn’t China in good enough shape as it is?

TP: It is still growing by 7.5%, it’s enough for the current leadership. And of course China naturally is a reform-based society that announces reforms regularly. The new government is pursuing a range of new reforms, tax reforms basically. They want to transform the investment economy into an economy that is more focused on domestic consumption.

RT: With increasing wealth comes enormous changes in society, in national identity, can China itself keep up with its own economic growth?

TP: I believe that it will keep it up for the next 10 years at least. But there are a lot of things to do. The economy growth is actually faster than a lot of other things in China like the political maturity. Social problems are still looming in China. And one of the topics at the global forum is the work ethic. China wants to have a stakehold and make the rules of the game and shape them in the future, and it has to come to the table and discuss with Europeans and Americans how we deal together in the future. Not only on economic issues, but on political ones, on ecological ones, social and cultural ones. China has to catch up in all those fields quickly.

I have put old my money into real physical Gold and Silver…..yes paper Gold is not worth the paper it is written on……you should have stressed the difference. Paper Gold is $1300. an ounce……but tell me where you could buy physical Gold at this price…..the answer is it is impossible…..and physical Gold will never go down to $1000 because it cost more than this to mine it…($1500)..if it did reach this price…..it would become scarce….therefore demand will push the price up. A person would be an idiot to listen to your advice without learning the difference. If you had $100,000 worth of physical gold 10yrs ago…..compared to $100,000 of cash then….today the gold would be worth much more……so comparing to both,would you agree the gold has appreciated.

gold ran so high because of fear, and has now returned to more normal levels in my opinion.
Having said that, i would never buy gold because as you said, it doesnt pay any income.
your arguments about gold not being a safe investment could relate to the housing market as well. Most Australians think housing is a “safe” investment and that prices will always go up. this isn’t the case, but most people think it to be true. With this in mind, a lot of people then go out and buy a “safe” property, but pay a lot more than it is worth (sounds like people buying… or speculating on the buying gold to sell it later to someone else for more money???). with people paying more for property than it is worth, the prices go up and at some point prices would theoretically have to retreat to more “normal” levels. The same argument can be used to describe the share market or any other investment market. so what do we as investors do? diversify. have some property, some shares, some gold, some art for heaven’s sake. it’s the only way to invest and be able to sleep at night. surely.